At the TowerXchange Meetup Europe 2017, which took place at the Business Design Centre in London on April 4-5, over 250 senior tower execs met, networked and shared experiences. The keynote panel addressed the future of European towers from completing 4G rollout to assessing the potential shape of 5G, with a look at regulations and challenges along the way. Joining the panel and sharing their experiences were: Malcolm Collins, CEO of UK based JV CTIL, Alex Mestre, ‘deal-maker-in-chief’ for leading towerco Cellnex, Oscar Cicchetti, former CTO of Telecom Italia and now CEO of their successful tower spin out INWIT, Scott Coates, CEO of Wireless Infrastructure Group and Chair of the European Wireless Infrastructure Association and Alexander Chub, expert in Russian technology and Communications and President of Russian Towers.
Comparing Europe to the rest of the world
Compared to the rest of the world, the European tower market has its own peculiarities. It’s at a very early stage versus the US, with only around 30% of towers owned by towercos and infracos in Europe and 80% towerco-owned in the US. Tenancy ratios are also very different and tax frameworks vary enormously, according to a group of C-level executives at TowerXchange’s second annual Meetup Europe in April.
In terms of governance, the prevalence of MNO-owned towercos and JV Infracos in Europe makes it very different from the US or African markets, where towercos are independently owned. In addition in Europe growth through new build is not as big an opportunity as in other markets, creating a second value driver for towercos in decommissioning and rationalisation. Oscar Cicchetti, CEO of INWIT, raised the question of deeper collaboration between towercos and MNOs in the deployment of new network architectures to support expended 4G and 5G rollout.
Tower ownership and business models
Russian Towers’ CEO, Alexander Chub, agreed that 4G rollout has been a big opportunity for towercos, explaining that, as Russian infrastructure was 100% controlled by MNOs, and infrastructure was their route to penetrating the market. Due to the urban nature of the Russian market, a lot of the new infrastructure being built tends to be new types of poles, rather than regular marco towers. In Russia, the service model, rather than a ‘real estate’ model is coming to the fore - inventing incremental services in improving site effectiveness, network planning and in future perhaps even big data services.
Malcolm Collins, CEO of UK-based JV Infraco CTIL, agreed that consolidation and decommissioning are key, with their business model always based on rationalisation of the network while also improving rural coverage. In terms of rural coverage, it seems towercos may be missing an opportunity, as CTIL has looked to increase rural coverage by around 1,200-1,500 towers over the last year but found towerco offerings in the locations they wanted to be prohibitively expensive including transmission and power, meaning they have built their own.
Scott Coates, CEO of Wireless Infrastructure Group, agreed that the push into rural areas is gaining momentum, in many ways due to increased political will to cover rural ‘black spots’. When considering in which direction to move tower portfolios, demand is growing at street level for small cells as the forerunners of 5G infrastructure. Momentum is growing and the European market has passed take off velocity.
Alex Mestre, Director International and Business Development at Cellnex, agreed that 5G is snowballing, and commented that the 5G hype at Mobile World Congress this year was massive. A push from vendors to force a new wave of investment which is crunching the economics of the operators, and will perhaps trigger an increase in sale and leaseback activity in Europe.
New opportunities
MNOs who are not in a position to sell their towers are nonetheless interested in rationalisation and opex savings, so the fact that towercos are led by operational rather than financial management means they still have capacity to support MNOs in opex management. Towercos can also add value to help mutualise elements beyond just the tower such as fibre, a new wave of small cells deployment and decommissioning. In addition rooftops, which have thus far not been considered ‘a real tower’ from a towerco business point of view, are making up an increasingly large part of the ecosystem.
When discussing the implications of the new IFRS 16 standard, the participants agreed that not all of their customers would be adversely affected, as it benefits some MNOs to have the cost on their balance sheet.
Status update on 4G rollout
In terms of completing 4G rollout and moving into 5G, the panellists agreed that many western European countries are close to reaching ‘peak 4G’ in the next 12-18 months, with almost 100% coverage across the board, although additional frequencies being added will mean more equipment at the base of each tower will be needed. In Russia more density is needed, with analysts anticipating the need for another 30,000-50,000 new base stations across city and transport infrastructure.
As technology evolves from 4G to LTE Advanced, and then towards 5G, there will be increasing opportunities for towercos, with the jump from 4G to 5G potentially moving the towerco from real estate to service companies. However, to do so the whole ecosystem must open up to sharing more than towers. There’s already a blurring of boundaries between previously separate businesses and as they focus on a different layer and scope of competition, horizontal integration is key.
The panel stated that one of the biggest barriers to 5G rollout is regulation and transmission. The UK government is tacking this issue with the Digital Economy Bill, which changes the whole valuation process for land, in order to try and reduce costs and accelerate deployment of the infrastructure needed to support 5G rollout.
While demand for data is growing, infrastructure in Europe needs to be updated. The panel agreed that we will see an increase in carrier aggregation to reuse frequency, while indoor coverage and more frequencies in the higher range were also discussed as likely solutions and drivers for more points of presence.
It’s not just MNOs who will need denser networks of course, with Cellnex stating that more than half of their growth comes from non-MNO tenants such as fixed wireless access, public safety and IoT providers, customer diversification is key to driving up tenancies across Europe.
